[2010] UKFTT 22 (TC)

TC00337
Appeal number  TC/2009/11281

Fixed penalties – Late returns – Reasonable excuse – Reliance on accountants – Appeals dismissed – TMA 1970 ss 93 and 93A]

FIRST-TIER TRIBUNAL
TAX CHAMBER

ARNOLD JEFFERS
GEORGE JEFFERS
	G & A JEFFERS	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Income tax)	Respondents

				TRIBUNAL: 	$IR STEPHEN OLIVER QC

The Tribunal determined the appeals without a hearing under the provisions of rule 26 of the Tax Chamber Rules 2009

This Decision contains full written findings and reasons for the summary decision released on 27 October 2009.

© CROWN COPYRIGHT 2009

FULL DECISION

The individuals’ penalties

1.	Mr Arnold Jeffers and Mr George Jeffers each appeal against the first and second income tax fixed automatic penalties for late returns.  The penalties relate to the year 2006/2007.

2.	The penalties were imposed because the returns of each of Mr Arnold and Mr George Jeffers had “filing dates” of 31 January 2008 and each was received on 17 November 2008, i.e. some 9½ months late.  The notices to file had been issued on 6 April 2007.  In each case penalty notices were issued on 19 February and 5 August 2008: the aggregate of penalties under appeal by Mr Arnold and Mr George Jeffers is £200 each.

The partnership penalties

3.	Messrs Arnold and George Jeffers as partners appeal against the first and second fixed automatic penalties imposed for the late filing of the partnership return for the year to 5 April 2007.

4.	The partnership penalties were imposed because the return with a filing date of 31 January 2008 was received by HMRC on 17 November 2008.  The notice to file had been issued on 6 April 2007.  The penalty notices were issued on 19 February and 5 August 2008.  The aggregate of the partnership penalties is £200.

The circumstances

5.	Both individuals and the partnership used the same firm as agent for tax purposes at least until late 2008.   I refer to that firm as “the previous agent”.  The returns for the year ending 5 April 2007 were in all three cases required to be filed by 31 January 2008.

6.	Records for the relevant period had in all three cases been presented to the previous agent well in advance of the deadline.

7.	No returns had been filed by 19 February 2008 when the first fixed penalty was notified, nor had they been filed by 5 August 2008 when the second penalty notification was received.

8.	By 29 October 2008 a new agent, V Weir & Co, had been appointed.  The new agent appealed against all the fixed penalties by letter of that date.  In the letter are these words:

“Please allow the appeal on this occasion as tax returns were not submitted by the previous agents despite constant requests from our client to submit the 2007 tax returns.”

The same letter states that the new agents have requested information regarding the tax affairs of their new clients and would be submitting the outstanding tax returns when they had received that information from the previous agents.  The request for review of the decisions states that “it cannot be overestimated the efforts required to retrieve the records”.

The point at issue in the appeals of all three appellants

9.	As I read the papers and the explanations put forward by the new agents the appellants do not dispute the facts relied upon by HMRC.  The issue is whether “throughout the period of default” as defined in TMA section 93(10) the two individual appellants “had a reasonable excuse for not delivering the return” : see section 93(8)(a).  So far as the partnership penalties are concerned the issue is whether Mr George Jeffers, as representative partner, “had a reasonable excuse” for not delivering the return “throughout the period of default”, as defined in section 93A(8).

10.	The excuse relied upon by all three appellants is, as I read their submission in their Notices of Appeal (all lodged on 24 June 2009), that the fault lay with their previous agents for not submitting the returns on time.  The appellants point out that they had been advised by their previous agents that the amounts were not due and it was only when Mr Jeffers had received the second penalty notice that he had requested his records to be returned and moved to the new agents.

11.	There is no dispute that the previous agents had failed to comply with the statutory requirement to file the returns by 31 January 2009.  Do the appellants have a reasonable excuse (that continues through until 17 November 2008) for having relied upon the previous agents to file their returns by 31 January 2008?  In the words of the new agents (in a letter of 26 August 2009): “My client should not be culpable for the actions of an agent”.

Are the previous agents to blame?

12.	In August 2009 the appellants brought a “small claim” against their previous agents.  The Notice of Dispute completed by the previous agents states that the appellants are “presumably responsible for filing tax returns on time”.  It goes on to say that the “fines which have been raised are as a direct result of the [appellants’] own tardiness and are not the responsibility of the [previous agents].”

13.	The new agents make the point in a letter to the Tribunal of 26 August 2009 that all four VAT returns for the year to 31 January 2007 had been lodged by the due dates.  This, they say, clearly demonstrates that the appellant had “left in their documentation on time for submission by their accountant”.

14.	I do not have sufficient evidence to enable me to express a view whether the previous agents were in breach of their dates to provide tax compliance services to the appellants.  However, without deciding that point, I move on to deal with the question whether the appellant’s excuse that they relied upon their previous agents to file their 2006/2007 returns on time amounts to a “reasonable excuse”.

Was there a reasonable excuse?

15.	As noted above the appellants, both as individuals and as partners, say that the fault lay with their previous agents.  Despite constant requests from the appellants to submit he 2007 tax returns the agents had failed to do so.

16.	HMRC point to the warning on the notices issued to each of Mr George and Mr Arnold Jeffers and to them as partners.  This contained a warning that a penalty would be charged for late filing of the return and it contained advice about filing dates.  HMRC state that each of them had been charged with penalties for submission of late returns for the year ended 5 April 2005; they should therefore have been aware of the requirement to make returns on time.  Moreover, during the period of default HMRC had sent to each of the appellants statements advising them that their 2006/2007 returns were late and notifying them of their accruing penalties.

17.	The Code (i.e. Part X of TMA) does not qualify the expression “reasonable excuse” by, for example, ruling out reliance on another to perform a task such as making a tax return.  The obligation to make the tax return on time is nonetheless the taxpayer’s.  It remains his obligation regardless of the fact that he may have delegated the task of making the return to his agent.  There may be circumstances in which the taxpayer’s failure, through his agent, to comply with, e.g, the obligation to make the return on time can amount to a “reasonable excuse”.  To be such a circumstance it must be something outside the control of the taxpayer and his agent or something that could not reasonably have been foreseen.  It must be something exceptional.

18.	Here there is no explanation for the defaults save that the previous agents never did what they had been engaged to do.  Even if that is right as a matter of fact in the present case (and, as noted, the previous agents dispute the circumstances alleged by the appellants), it does not in my opinion amount to a reasonable excuse.  There was no other underlying cause suggested for the failure to make the return on time.  Quite simply, the appellants relied upon what they now regard as a firm of unreliable accountants.  Moreover in view of the defaults of the appellant that had been penalised the previous year, the reasonableness of their excuse for the 2006/2007 defaults diminishes.

19.	For those reasons I dismiss all the appeals.

20.	As the decision contains the full findings and reasons for the summary decision released on 27 October 2009, the appellants are now at liberty to apply for permission to appeal.

SIR STEPHEN OLIVER QC
                                         CHAMBER PRESIDENT

RELEASE DATE: 11 January 2010